2025 (9) TMI 616 - HC - Indian Laws

Summons under Section 420 IPC set aside under Section 482 CrPC for lack of evidence of dishonest intention

SURAJ GARG Versus STATE & ANR

HC, exercising inherent jurisdiction under Section 482 CrPC, set aside the Magistrate's summoning order under Section 420 IPC and disposed of the ... Rejection of cancellation report filed under Section 173 of CrPC - summoning of Petitioner for the offence punishable under Section 420 of IPC - invocation of inherent jurisdiction of this Court under Section 482 CrPC - HELD THAT:- The line of demarcation between a mere breach of contract or a civil dispute on the one hand, and a criminal offence of cheating on the other, has been consistently emphasised in several Supreme Court decisions discussed later in the judgment. It is against this legal backdrop that the correctness of the Magistrate’s order requires a closer examination. The Magistrate has recorded satisfaction that a prima facie case of cheating was disclosed and, on that basis, directed issuance of summons to the Petitioner. It is not in dispute that a Magistrate is empowered to take cognizance and issue process even in cases where the police, upon investigation, has filed a cancellation report under Section 173 of CrPC. The same principles were reiterated by the Supreme Court in Sunil Bharti Mittal v. CBI [2015 (9) TMI 1339 - SUPREME COURT], where it was emphasised that the process of summoning requires due satisfaction of the Magistrate that sufficient material exists to proceed against a person. Likewise, in GHCL Employees Stock Option Trust v. India Infoline Ltd. [2013 (3) TMI 725 - SUPREME COURT], the Court underscored that summoning orders must not be passed in a casual or mechanical manner. The Court finds that the material on record fails to disclose the essential ingredients of Section 420 IPC. Further, the Magistrate’s order summoning the Petitioner does not reflect a conscious application of mind, particularly in light of the conclusions drawn by the investigating agency, from which the Magistrate departed without sufficient reasoning. Both the cancellation report and the subsequent status report dated 18th August, 2011, clearly record that the Complainant and her husband had invested through M/s Share-in-Shares, a sole proprietorship of the Petitioner’s late father; that the two cheques of INR 50,000/- each were credited not to the Petitioner’s personal account but to the Complainant’s Margin Account with the firm; and that trading activity was indeed undertaken on behalf of the Complainant, which resulted in losses, with certain shares remaining withheld by the firm. These facts are corroborated by account statements and the statement of the firm’s authorised signatory, Narayan Kumar Jha. While the Complainant alleges that the Petitioner harboured dishonest intent from the outset, the contemporaneous record does not support such claim. This Court finds that the impugned summoning order dated 1st December, 2011, has been passed without due application of judicial mind to the material on record, and in disregard of the settled principles governing Section 420 of IPC. The order, therefore, is unsustainable. The impugned summoning order is set aside. The petition is disposed of. ISSUES PRESENTED AND CONSIDERED 1. Whether the Magistrate erred in rejecting the police cancellation report under Section 173 CrPC and summoning the accused for trial under Section 420 IPC despite investigative findings exonerating him. 2. Whether the material on record, taken at face value, discloses the essential ingredients of the offence under Section 420 IPC, notably dishonest intention at the inception of the transaction. 3. Whether the dispute essentially involves civil or regulatory matters (including possible SEBI/regulatory violations) rather than a criminal offence of cheating, thereby attracting the High Court's inherent jurisdiction to quash criminal proceedings as an abuse of process. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of Magistrate's rejection of the cancellation report and summoning order Legal framework: A Magistrate has power to accept or reject a police cancellation report and to take cognizance and issue process; however, the exercise of that power requires conscious application of mind and must be based on material on record establishing a prima facie case. Summoning must not be mechanical; the Magistrate must indicate how the material discloses the offence. Precedent Treatment: Applied the settled principle from Supreme Court authorities emphasising that summoning is a serious matter requiring scrutiny of complaint and preliminary evidence and that mere mechanical issuance of process is impermissible; those authorities were followed in assessing the need for reasons when departing from a cancellation report. Interpretation and reasoning: The Court examined whether the impugned order reflected a considered application of mind and demonstrated how the material contradicted the investigative conclusion. The cancellation report and subsequent status reports contained detailed findings (crediting of cheques to the proprietorship's margin account, trading activity, losses, and account statements corroborating the same). The Magistrate's order did not set out sufficient reasoning explaining departure from these findings or how the material prima facie disclosed the essential ingredients of cheating. Ratio vs. Obiter: Ratio - A Magistrate rejecting a cancellation report must record sufficient reasons showing how the material, taken at face value, establishes the essential ingredients of the offence; mechanical or unexplained summoning is unsustainable. Obiter - General observations on the wide but not unbridled nature of Magistrate's power. Conclusion: The Magistrate's rejection of the cancellation report and issuance of summons under Section 420 IPC was unsustainable for lack of adequate reasoning demonstrating how the available material prima facie established the offence. Issue 2: Whether material discloses essential ingredients of Section 420 IPC (including mens rea at inception) Legal framework: To constitute cheating under Section 420 IPC, prosecution must establish (i) deception of a person, (ii) fraudulent or dishonest inducement to deliver property, and (iii) dishonest intention at the very inception of the transaction. Mere breach of contract or failure to perform a promise, without dishonest inception, does not amount to cheating. Precedent Treatment: Followed Supreme Court jurisprudence establishing the tripartite requirements for Section 420 and the necessity of mens rea at inception; authorities stressing that threshold for summoning is lower than proof beyond reasonable doubt but still requires prima facie satisfaction of essential ingredients were applied. Interpretation and reasoning: The investigative record, account statements, and statement of the firm's authorised signatory indicated that the complainant invested through the proprietorship concern, the cheques were credited to the firm's margin account, trading was undertaken, losses occurred, and certain shares were withheld as business losses. There was admission only of a professional fee payment to the accused; no contemporaneous material established dishonest intention by the accused at the outset. The Court held that these facts, taken at face value, negate the indispensable element of dishonest intention at inception and therefore do not prima facie disclose cheating. Ratio vs. Obiter: Ratio - Where contemporaneous documentary and investigative material show transactions were executed through a trading/proprietorship account and indicate trading losses rather than an initial dishonest inducement, the essential mens rea for Section 420 is absent and summoning is inappropriate. Obiter - Emphasis on the prosecutorial burden to demonstrate inception mens rea even at the summoning stage. Conclusion: The material on record does not prima facie establish deception with dishonest intention at inception required for Section 420; summoning under that section was therefore unwarranted. Issue 3: Nature of dispute - civil/regulatory vs. criminal abuse of process and scope for High Court's inherent jurisdiction Legal framework: High Court's inherent jurisdiction under Section 482 CrPC may be exercised to quash criminal proceedings which amount to abuse of process, including where essentially civil or regulatory disputes are improperly clothed as criminal to harass the accused. Quashing is an exception but available where continuation would amount to oppression or abuse. Precedent Treatment: Followed Supreme Court guidance that quashing is discretionary and sparingly exercised, but permissible where criminal process is misused to achieve civil ends or harassment, especially when material shows absence of requisite criminal intent. Interpretation and reasoning: The factual matrix revealed a commercial transaction involving share trading through a proprietorship; regulatory issues (e.g., non-registration with regulatory authority) pertain to regulatory statutes rather than IPC. The evidence indicated business losses and account balances that left the complainant owing net amounts to the firm. The Court concluded that continuation of criminal proceedings in such circumstances would amount to abuse of the criminal process to pressurise the accused. The lack of any proximate or contemporaneous material evincing dishonest intention reinforced the conclusion that the dispute was civil/regulatory in nature. Ratio vs. Obiter: Ratio - Where disputes are essentially commercial/regulatory and the record lacks any prima facie dishonest intention, the High Court can invoke inherent jurisdiction to quash criminal proceedings as an abuse of process. Obiter - Observations on the interplay between regulatory violations and criminal culpability under the IPC. Conclusion: The proceedings, being primarily civil/regulatory in character and lacking the essential mens rea for cheating, constituted an abuse of process; exercise of Section 482 CrPC jurisdiction to quash the summoning order was justified. Overall Conclusion The impugned summons under Section 420 IPC was set aside because (i) the Magistrate departed from the police cancellation report without adequate reasoning showing how the material prima facie disclosed the offence, (ii) the record did not establish dishonest intention at the inception required for cheating, and (iii) the dispute was essentially commercial/regulatory in nature, continuation of criminal proceedings would amount to abuse of process - thereby justifying quashing under the High Court's inherent jurisdiction.